TAXATION: NSW Liberal MP calls for tax reform for families

by Peter Westmore

News Weekly, April 15, 2006

Federal MP, Alan Cadman, has proposed replacing the child-care rebate with direct cash payments to parents who can then choose to spend it on either institutionalised child-care or home-based child-care.

Alan Cadman, the Sydney Liberal MP who co-founded the Coalition's Family Policy Group, has called for a major reform of the tax system to put more money back into families. A feature of the proposal is to abolish the child-care rebate - which is only available to parents who use child care - and to make direct payments to parents with young children.

The Cadman plan is designed to address a number of problems with the existing tax system. Currently, high effective marginal tax rates reduce the choices for families as to whether a second parent should do paid work or remain at home to care for children.

The current system is also inequitable. Mr Cadman said, "Families on similar incomes get vastly different assistance for their children. For, example, families on $60,000 get $10,000 per child if they utilise formal child care but only $1,773 if they use informal care or no care."

Additionally, the proposal he has put forward will remove the complexity of the present system, and provide prompt payment for parents with children. (The payment of the Child Care Rebate occurs on average 21 months after the expenditure has been incurred).

Mr Cadman's proposal involves removing the income test on Family Tax Benefit A (FTBA) for children under 5 years old, increasing FTBA to $4,600 per child, leaving unchanged other benefits, and removing the 30 per cent Child Care Rebate.

Mr Cadman told ABC Radio's The World Today that, for parents with young children, the choice of paid work or caring for children was a particularly difficult one.

He said, "All surveys and everything that's been done recently by government departments indicate that is the hard choice. The work and home choice is the hard one for parents with young children. They find it very difficult to find a satisfactory solution, and it is one of the factors that brings most stress into young families. ...

"We're proposing that there be a payment of $4,600, approximately, for children under the age of five, and that would allow parents, whose joint income is approximately $90,000 or less, to benefit from that and be able to exercise real choice about work and home."

Independently costed

Mr Cadman's proposal has been independently costed at about $1.75 billion dollars, far less than the budget surplus foreshadowed by the Treasurer, Peter Costello.

Because the child-care rebate was an election promise, the Treasurer has indicated his reluctance to drop it.

Mr Costello is also facing pressure from high-income earners, including former merchant banker, Malcolm Turnbull, to cut the top marginal tax rate.

Mr Cadman told The Australian, "Unlike Malcolm Turnbull and some of the comments of the Treasurer, it is the firm belief of many that family taxation, especially where there are children, needs to be resolved before any general changes to the tax scales."

He said that his proposal would target all families, and not just those currently utilising child care. He said: "The proposal continues to provide for those presently using child care but also improves choice for other families."